Why Shake Shack Inc. Stock Plunged, Then Recovered, Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What:Shares of Shake Shack initially plunged more than 10% Thursday and then recovered to trade up around 1% as of 2:30 p.m. after the company announced fourth-quarter results.

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So what: Revenue climbed 51.5% year over year to $34.8 million, helped by "same-Shack" sales growth of 7.2%, excluding sales from the 14th week in the quarter. Shake Shack also opened 10 systemwide restaurants during the quarter, including five domestic company-owned locations and five international licensed restaurants. Meanwhile, Shake Shack's quarterly net loss was $1.4 million, or $0.05 per diluted share. After accounting for around $1.1 million in after-tax expenses associated with Shake Shack's IPO last month, however, its adjusted net loss came in at roughly $0.01 per share. Analysts, on average, were expecting an adjusted loss of $0.03 per share on sales of $33.1 million.

Now what: Thisvolatility isn't surprising considering Shake Shack's adjusted earnings were at first unclear. This also marks Shake Shack's first quarterly report as a publicly traded company, and the stock has more than doubled from its IPO price to sit around $47 per share as of this writing. Even so, keep in mind Shake Shack ended the year with 63 locations -- of which 31 were domestic and company-owned -- and management sees the potential to gradually grow domestic company-operated restaurants to "at least 450."

In the meantime, Shake Shack expects fiscal 2015 revenue to be between $159 million and $163 million, with same-store sales growth in the low single digits and at least 10 new domestic company-owned locations. Wall Street was modeling 2015 sales below the mid-point of that range at $160.7 million.

All things considered, though Shake Shack stock has had an impressive climb so far, I can't blame the market for its optimism given the company's solid fourth quarter, encouraging forward guidance, and staggering growth potential.